Image source: Virgin America.

What: Shares of Virgin America (NASDAQ:VA) soared on Monday after the company announced that it was being acquired by Alaska Airlines (NYSE:ALK) for $2.6 billion. The stock jumped last week on a report that both Alaska Air and JetBlue Airways (NASDAQ:JBLU) were interested in buying the company. At 11:15 a.m. ET Monday, shares of Virgin America were up 41%, while those of Alaska Air and JetBlue were down 5.7% and 3.5%, respectively.

So what: Alaska Air is paying $57 per share for Virgin America, putting the total transaction value, including debt and capitalized aircraft leases, at about $4 billion. The deal price represents a substantial 47% premium over Virgin America's closing price on Friday.

Following the close of the deal, which is expected to occur no later than Jan. 1, 2017, Alaska Air will become the fifth largest U.S. airline, with more than $7 billion of annual revenue, 1,200 daily departures, and 280 aircraft. Alaska Air expects to achieve annual net synergies of $225 million once the two companies are fully integrated, while one-time integration costs are expected to be in a range of $300 million to $350 million. Alaska Air expects the transaction to be accretive to adjusted EPS in the first full year following the close of the deal.

Now what: The Wall Street Journal reported that bidding between Alaska Air and JetBlue was intense, pushing the eventual deal price higher. Both Alaska Air and Virgin America reported impressive profitability during 2015, with operating margins well above typical levels, driven in part by low fuel prices. At $2.6 billion, Alaska Air is only paying about 12.5 times adjusted earnings for Virgin America. However, the current level of profits may not be sustainable in the long run. JetBlue reportedly dropped its bid due to an escalating price, so Alaska Air is certainly not getting a bargain here.

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